More monetary stimulus needed to deal with Brexit uncertainity, says BoE's Minouche

More monetary stimulus would likely be needed to aid the British economy as it adjusts to the uncertainty created when the country voted to leave the European Union, a deputy governor of the Bank of England said on Wednesday.

"There is no doubt in my mind that the UK is experiencing a sizeable economic shock in the wake of the referendum," Minouche Shafik, the central bank’s departing deputy governor for markets and banking, said.

Shafik, who is to join the London School of Economics next year, said further stimulus measures would likely be necessary to stop the UK’s slow economic growth from turning “into something more pernicious”.

After the Brexit vote, the central bank cut interest rates in August to 0.25% from 0.5% and added to its quantitative easing programme, and it’s been suggested that the bank would further cut interest rates at its November meeting.

Speaking at a Bloomberg conference, she said: “it seems likely to me that further monetary stimulus will be required at some point in order to help ensure that a slowdown in economic activity doesn’t turn into something more pernicious”.

Uncertainty about whether Britain will have the same access to the EU’s single market and the process of Brexit negotiations was affecting business investment prospects, the rate-setter said.

When the UK voted to leave the EU, the value of the pound plummeted which has since helped the economy to deal with the change, but the adjustment processes can sometimes be “painful”.

"That's where monetary policy can help [...] However, the likely timing of that stimulus will depend on the continued evolution of the data over the coming weeks and months. Thus far, the welcome improvement in the forward-looking indicators suggests that the slowdown may not be as sharp or as sudden as we might have feared."

She also said that foreign companies are also becoming cagey when it comes to investing in the UK.

“We know that some of those who rely on the European Union as a destination for their exports are beginning to make contingency plans in case they have to move some of their business elsewhere.”

In the autumn statement in November, Chancellor Philip Hammond is set to announce fiscal plans to compliment the monetary measures from the BoE and it is speculated he will increase government spending.

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